Court Holds That “Domestic End Products” Qualify Under FAR Trade Agree…

[ad_1]

In a July 16, 2018 decision, the Court of Federal Claims (COFC) sustained a pre-award protest challenging the US Department of Veteran’s Affairs’ (VA) interpretation of what constitutes a “US-made end product” under the Federal Acquisition Regulation (FAR) provisions implementing the Trade Agreements Act (TAA). Acetris Health, LLC v. United States (No. 18-433C). The court held that “US-made end products” include products manufactured in the US and qualified as “domestic end products” under the FAR. It also held that a procuring agency must make an independent assessment of whether a product qualifies as a “US–made end product” and cannot simply rely on Customs and Border Protection (CBP) country of origin (COO) determinations.

Background

Acetris involved a VA pharmaceutical procurement. Acetris was a domestic pharmaceutical distributor that acquired products, including the pharmaceutical tablets at issue, from a third party that manufactured those products at a facility in New Jersey. The tablets that Acetris was proposing to sell to the VA were manufactured from a number of ingredients sourced from both US and foreign countries, including India. Prior to filing its protest, Acetris had requested and received a COO final determination from CBP regarding the tablets at issue. The CBP found that the manufacturing process at the New Jersey facility did not result in substantial transformation in the US and that the tablets were a product of India for purposes of US government procurement under relevant CBP precedent for determining the COO of pharmaceutical products. See 83 Fed. Reg. 5118, 5132-33 (Feb. 5, 2008).

The VA solicitation included the TAA clause at FAR 52.225-5 and the accompanying TAA Certification at FAR 52.225-6. In both pre-proposal questions and in discussions, Acetris and the VA addressed the issue of whether the VA would consider products that were manufactured in the US and qualified as domestic end products as defined in the FAR to be US-made end products for purposes of TAA compliance even if they had not been substantially transformed in the US. However, the VA ultimately rejected Acetris’ position based largely on the CBP’s final determination. Acetris nonetheless submitted a proposal, which the VA rejected “‘because the manufacturing location’ of [Acetris’ tablets] – India – ‘is not a [TAA] designated country’” and made award to another, lower priced offeror.[1]

Relevant Regulations

The purchase restriction in FAR 25.403(c) implements the Trade Agreements Act and provides in relevant part that in acquisitions covered by the WTO GPA, “[the government may] acquire only US-made or designated country end products.” See also FAR 52.225-5(b) (same). FAR 25.003 defines “US–made end products” as “an article that is mined, produced, or manufactured in the United States or that is substantially transformed in the United States into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed.” See also FAR 52.225-5(a) (same). FAR 25.003 also defines “domestic end products” in relevant part as “[a]n end product manufactured in the United States, if (i) [t]he cost of its components mined, produced, or manufactured in the United States exceeds 50 percent of the cost of all its components . . . ; or (ii) [t]he end product is a [Commercial Off-The-Shelf (COTS)] item.”[2] See also FAR 2.101 (defining COTS).

The Court’s Decision

In Acetris, the COFC held that “US-made end products” includes “domestic end products” and that the VA’s contrary interpretation of the solicitation was arbitrary, capricious, and contrary to law. In substance, the court held that an end product that is “manufactured in the US” from materials sourced from multiple countries and qualifies as a “domestic end product” under FAR 25.003 is eligible for government procurements subject to the TAA even in the absence of substantial transformation in the US. Further, since “domestic end products” also qualify for government procurements under the Buy American Act (BAA), see FAR 25.101(a) & 52.225-1, the court’s decision effectively holds that BAA compliant products are also eligible for procurement under acquisitions subject to the TAA.[3]

In concluding that “US-made end products” include “domestic end products,” the court relied on the regulatory history of the 1998 rewrite of FAR Part 25. Opinion at 3 & n.4; 21-22, n.16; see 63 Fed. Reg. 51642-01 (Sept. 28, 1998). It also noted that while the definition of “designated country end products” includes those that are “wholly the . . . manufacture” of a designated country (emphasis supplied), the corresponding definition of “US-made end products” does not include this limitation. It went on to find that “the omission of the word ‘wholly’ from the definition of ‘US-made end product’ must be intentional,” and that “if the authors of the FAR wanted to use the [same] rule of origin to determine what products qualify as US-made end products . . ., they would have ensured that the two definitions were identical.” Id. at 23, n.17.

As noted above, Acetris requested and obtained a final COO determination from CBP, which concluded that the tablets at issue were a product of India. See 19 CFR 177.21-22. In the course of its decision, CBP also addressed whether the tablets at issue were “manufactured” in the US within the meaning of “US-made end product” in FAR 25.003. Relying on FAR 25.003 and the rule of origin at 19 CFR 177.22(a), which provides in relevant part that a product must be “wholly the . . . manufacture of that country,” CBP held that the tables were not manufactured in the US since production occurred partially in India. As noted above, the VA subsequently concluded it was bound by CBP’s COO determination. However, the court held that the VA was required to make its own assessment of whether Acetris’ tablets qualified as a “US-made end product” and could not simply rely on the CBP’s COO determination. In doing so, the court first emphasized that procuring agencies and contracting officers are responsible for ensuring compliance with applicable laws and regulations and found there was no evidence in the administrative record that the VA had done so as to whether the Acetris tablets qualified as US-made end products. It then stated nothing in the TAA provides that CBP, rather than procuring agencies, “is responsible for determining whether an offered product qualifies as a US-made end product under the TAA clause.” Opinion at 25. Further, after reviewing several provisions of the TAA regarding its rule of origin and COO determinations, the court concluded that while the CBP can determine “whether a product is ‘wholly manufactured’ in a foreign country in accordance with the [TAA’s] rule of origin,” [it] is not empowered to determine the threshold question of whether an offered product is a US-made end product (particularly, whether an offered product is a domestic end product) pursuant to the [TAA] clause.”[4] Id. at 25-26. Finally, it noted that, unlike other matters, the FAR does not direct procuring agencies to refer TAA compliance issues to CBP.

In terms of relief, the court enjoined the VA from construing “US-made end products” as not including “domestic end products” in the future and from relying on CBP determinations rather than “independently ascertaining whether an offered product is manufactured in the United States (in other words, a domestic end product), pursuant to the definition of the term ‘US-made end product.’” Id. at 31 However, it did not require the VA to issue a new solicitation and reevalute proposals, since it found that Acetris would not have received the award even under a proper interpretation of the solicitation given its higher price.

Conclusion

The Acetris decision held that end products that qualify as “domestic end products” can also qualify as “US-made end products” for purposes of the FAR TAA clause. However, the FAR does not define what constitutes “manufacturing” purposes of determining “domestic end product.” Further, while there is some case law, primarily at GAO, addressing “manufacturing” for purposes of the BAA, the court did not address whether Acetris’ tablets were “manufactured in the United States” under FAR 25.003. Whether application of the “domestic end product” standard will result in substantially different results from the “substantial transformation” standard in determining whether an end product sourced from multiple countries and “manufactured” in the US is a “US-made end product,” is uncertain and will need to be determined on a case-by-case basis. The possibility of different outcomes might be greater for COTS items which are not subject to the 50% cost of components test. Nonetheless, the court’s decision appears to introduce additional complexity into the determination of what constitutes a “US-made end product” for purposes of the FAR TAA clause. That, together with the holding that procuring agencies cannot simply rely on CBP determinations but must “independently assess” whether a product is a domestic end product, could increase the burden on procuring officials (and contractors), in assessing TAA compliance.

[ad_2]

Source link Google News